Understanding US CPI and Core CPI: September 2024 Insights by @LiveSquawk

The financial world closely follows economic indicators, and one of the most critical is the Consumer Price Index (CPI), which provides valuable insight into inflation trends. In September 2024, LiveSquawk reported key data points for the US CPI, reflecting both monthly and yearly changes. This blog will delve into the meaning of these figures, how they compare to market expectations, and their implications for investors, businesses, and policymakers.

What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) measures the average change in prices that consumers pay for a basket of goods and services over time. It serves as one of the main gauges of inflation. Economists and policymakers monitor CPI to assess inflationary pressures and adjust fiscal or monetary policies accordingly. The CPI is divided into two main types:

1. Headline CPI: This includes all goods and services, such as food, energy, transportation, housing, and healthcare.
2. Core CPI: This excludes food and energy prices due to their volatility, providing a clearer view of underlying inflationary trends.

LiveSquawk’s September 2024 CPI Data

In its latest report, LiveSquawk shared the US CPI data for September 2024:

• CPI (M/M): 0.2% (estimate: 0.1%, previous: 0.2%)
• Core CPI (M/M): 0.3% (estimate: 0.2%, previous: 0.3%)
• CPI (Y/Y): 2.4% (estimate: 2.3%, previous: 2.5%)
• Core CPI (Y/Y): 3.3% (estimate: 3.2%, previous: 3.2%)

Let’s break down what these numbers mean.

Monthly and Yearly CPI: What Do the Numbers Reveal?

1. CPI (M/M) 0.2%:

• The headline CPI increased by 0.2% in September, which is consistent with the previous month’s growth. This is slightly higher than the market’s expectation of 0.1%. The modest rise suggests that inflation is still present but growing at a controlled rate.

1. Core CPI (M/M) 0.3%:

• Core CPI increased by 0.3%, matching August’s growth but surpassing the estimated 0.2%. This indicates a steady rise in prices for goods and services that exclude the volatile food and energy sectors. The higher-than-expected figure suggests that inflationary pressures are still present in the broader economy.

1. CPI (Y/Y) 2.4%:

• Year-over-year, the headline CPI rose by 2.4%, down from the previous 2.5% but slightly above the expected 2.3%. This indicates that while inflation has slowed compared to last year, it remains higher than anticipated. This may lead to cautious optimism among policymakers as inflation moderates.

1. Core CPI (Y/Y) 3.3%:

• The Core CPI year-over-year reading came in at 3.3%, higher than the forecast of 3.2% and matching the previous month’s rate. This sustained higher inflation in core categories could prompt continued vigilance from the Federal Reserve, as they aim to keep inflation under control without stifling economic growth.

Economic Implications of the CPI Data

The CPI data from September offers mixed signals regarding inflation. While the overall monthly increase in CPI is moderate, the Core CPI continues to rise at a slightly faster rate than expected. Several implications arise from this:

1. Impact on Federal Reserve Policy

The Federal Reserve keeps a close eye on CPI data when making decisions about interest rates. With core inflation remaining elevated, this report might strengthen the case for maintaining higher interest rates or even implementing further rate hikes to control inflation. Investors and financial markets will be keenly watching for the Fed’s next moves.

2. Consumer Spending and Business Investment

Rising inflation erodes purchasing power, meaning consumers may feel the pinch as their dollars don’t stretch as far. For businesses, higher inflation can lead to increased costs for materials, labor, and other inputs, potentially slowing down investment plans. However, with inflation not skyrocketing, both consumers and businesses may feel more comfortable than in periods of high inflation.

3. Housing Market Effects

Housing costs are a significant component of the Core CPI. Elevated Core CPI suggests that housing-related inflation remains a concern. Rising interest rates, often implemented to combat inflation, make mortgages more expensive, potentially cooling down the housing market further. Prospective homebuyers may delay purchases, and existing homeowners may choose not to sell if they feel they won’t get a favorable price.

Comparing the US to Global Inflation Trends

The US inflation rate has moderated over the past year, thanks in part to aggressive interest rate hikes by the Federal Reserve. However, global inflationary pressures remain high, especially in Europe, where energy prices have surged due to geopolitical events. While the US appears to be managing inflation reasonably well, its global counterparts may still face challenges, which can create ripple effects in the interconnected global economy.

For instance, higher inflation in other regions could increase the cost of imported goods in the US. Conversely, the US dollar’s strength due to high-interest rates may make imports cheaper, which could help keep inflation in check domestically.

What’s Next for Investors?

Investors need to be cautious in an environment where inflation is still higher than the Federal Reserve’s 2% target, especially with core inflation remaining sticky. Here are a few strategies investors might consider:

1. Diversification: Spread investments across different asset classes to mitigate risk. Stocks, bonds, commodities, and real estate can respond differently to inflation.
2. Inflation-Protected Securities: Consider investing in Treasury Inflation-Protected Securities (TIPS), which offer returns adjusted for inflation. This can help protect against the erosion of purchasing power.
3. Dividend Stocks: Companies with strong balance sheets and a history of paying dividends can provide a steady income stream, which can be particularly valuable during inflationary periods.
4. Commodities: Investments in commodities like gold, silver, and oil often perform well during inflationary times, as their prices typically rise alongside inflation.

Conclusion: Keep an Eye on Future CPI Reports

The September 2024 CPI report from LiveSquawk underscores the importance of monitoring inflation data closely, especially in a period of economic uncertainty. While inflation is moderating, Core CPI remains a concern, and the Federal Reserve’s response to these trends will be critical. Businesses, consumers, and investors should stay informed and prepared for potential shifts in the economic landscape. Keep an eye on future CPI reports to gauge the ongoing battle against inflation.

For timely updates on CPI and other economic indicators, follow @LiveSquawk on social media and stay ahead of the market trends that could impact your financial decisions.